Revenue Decoupling: Under-Rated Policy, Significant Impact

Utility revenue-decoupling breaks the link between sales and net revenue, which motivates utilities to sell as much electricity as it can produce cost-effectively. Though utilities have been increasing energy conservation efforts, some charge that the objective has been limited to reducing "just enough" so that demand is high enough to use up cost-effective generation but low enough to avoid costly purchases from other utilities, use of expensive generation, or affecting system stability.

Usage-decoupled rates can stabilize financial health, for example minimizing storm outage-related revenue losses and making revenues more predictable.  Most importantly, the more that utilities promote grid energy efficiency (i.e. utilities that sell less power) the more they profit.

Only five states had decoupled electric rates by 2004: California, Massachusetts, Minnesota, Rhode Island and Vermont. The federal government's US$3bn fund motivated ten other states to join the list and invest in efficiency initiatives. Utilities have more than doubled efficiency investments between 2008 and 2011 to about $8bn. 22 states now decouple their gas rates, as well.

The U.S. still ranks 9th in efficiency among the largest power consuming regions in the world, behind regions like China and Europe, though ahead of Brazil, Canada, and Russia. Policies like revenue-decoupling could aide the country in catching up in energy efficiency and renewable generation leadership, as grid generation accounts for half of States' carbon emissions.  The negawatt remains one of the biggest social and business opportunities of the decade, as it has been for a disappointing decade upon decade.

Will this time be different?

Can this policy have unintended consequences?

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